================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM N-CSRS
--------
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-21911
OLD MUTUAL ABSOLUTE RETURN MASTER FUND, L.L.C.
(Exact name of registrant as specified in charter)
--------
800 Westchester Avenue, S-618
Rye Brook, New York 10573
(Address of principal executive offices) (Zip code)
SEI Investments Distributors
One Freedom Valley Drive
Oaks, PA 19456
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-888-266-2200
DATE OF FISCAL YEAR END: MARCH 31
DATE OF REPORTING PERIOD: SEPTEMBER 30, 2009
================================================================================
ITEM 1. REPORTS TO STOCKHOLDERS.
Old Mutual Absolute Return Master Fund, L.L.C.
Financial Statements (Unaudited)
For the six-month period ended September 30, 2009
Old Mutual Absolute Return Master Fund, L.L.C.
Table of Contents
<Table>
Financial Statements (Unaudited):
Schedule of Investments............................................. 1
Statement of Assets and Liabilities................................. 3
Statement of Operations............................................. 4
Statements of Changes in Members' Capital........................... 5
Statement of Cash Flows............................................. 6
Financial Highlights................................................ 7
Notes to Financial Statements....................................... 8
Investment Management Agreement Approval............................ 23
</Table>
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (the "Commission") for the first and third quarters of
each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the
Commission's website at http://www.sec.gov, and may be reviewed and copied at
the Commission's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, as well as information
regarding how the Fund voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30, is available (i) without charge, upon
request, by calling toll free (888) 266-2200; and (ii) on the Commission's
website at http://www.sec.gov.
Old Mutual Absolute Return Master Fund, L.L.C.
Schedule of Investments (Unaudited)
September 30, 2009
INVESTMENT STRATEGIES AS A PERCENTAGE OF TOTAL INVESTMENTS
[PIE CHART]
CTA/Futures/Currency - 6.7%
Equity Long Bias - 7.9%
Equity Market Neutral - 11.3%
Equity Variable Bias - 35.6%
Event Driven - 13.1%
Global Macro - 16.1%
Equity Short Bias - 2.5%
Relative Value - 6.8%
<Table>
<Caption>
% OF
FAIR MEMBERS'
PORTFOLIO FUND COST VALUE CAPITAL (1) LIQUIDITY (2)
- --------------------------------------------------- ---------- ---------- ----------- -------------
CTA/FUTURES/CURRENCY:
Nias Futures Fund, Ltd. (Shares: 1,039.600) $1,039,600 $1,034,929 5.77% Quarterly
---------- ---------- ----
TOTAL CTA/FUTURES/CURRENCY 1,039,600 1,034,929 5.77%
---------- ---------- ----
EQUITY LONG BIAS:
JANA Partners Qualified, L.P. 1,146,994 1,154,158 6.43% Quarterly
JANA Piranha Fund, L.P. 112,050 76,650 0.43% Quarterly
---------- ---------- ----
TOTAL EQUITY LONG BIAS 1,259,044 1,230,808 6.86%
---------- ---------- ----
EQUITY MARKET NEUTRAL:
Marshall Wace Market Neutral TOPS Fund, L.P. 650,000 587,770 3.28% Monthly
Two Sigma Spectrum U.S. Fund, L.P. 1,000,000 1,172,468 6.54% Quarterly
---------- ---------- ----
TOTAL EQUITY MARKET NEUTRAL 1,650,000 1,760,238 9.82%
---------- ---------- ----
EQUITY SHORT BIAS:
Galante Partners, L.P. 479,394 383,873 2.14% Quarterly
---------- ---------- ----
TOTAL EQUITY SHORT BIAS 479,394 383,873 2.14%
---------- ---------- ----
EQUITY VARIABLE BIAS:
7x7 Institutional Partners, L.P. 833,000 974,500 5.43% Monthly
Atlas Fundamental Trading Fund, L.P. 550,000 529,690 2.95% Quarterly
Cedar Hill Capital Partners Onshore, L.P. 122,477 258,305 1.44% Quarterly
Expo Health Sciences Fund, L.P. 250,000 275,957 1.54% Quarterly
</Table>
1
Old Mutual Absolute Return Master Fund, L.L.C.
Schedule of Investments (Unaudited) (concluded)
September 30, 2009
<Table>
<Caption>
% OF
FAIR MEMBERS'
PORTFOLIO FUND COST VALUE CAPITAL (1) LIQUIDITY (2)
- --------------------------------------------------- ----------- ----------- ----------- -------------
EQUITY VARIABLE BIAS -- (CONTINUED):
FrontPoint Onshore Financial Services Fund, L.P. $ 500,000 $ 579,612 3.23% Quarterly
GEM Realty Securities, L.P. -- Class A 375,000 402,119 2.24% Annually
GEM Realty Securities, L.P. -- Class B 475,000 502,950 2.80% Quarterly
Iridian Opportunity Fund, L.P. 350,000 351,452 1.96% Monthly
JAT Capital Domestic Fund, L.P. 250,000 260,960 1.45% Quarterly
Longbow Infrastructure, L.P. 650,000 578,635 3.23% Quarterly
Longhorn Onshore Investors, L.P. 350,000 314,864 1.76% Quarterly
Southpaw Credit Opportunity Partners, L.P. 500,000 513,830 2.86% Semi-annually
----------- ----------- ------
TOTAL EQUITY VARIABLE BIAS 5,205,477 5,542,874 30.89%
----------- ----------- ------
EVENT DRIVEN:
GCA Credit Opportunities Fund LLC 500,000 566,401 3.16% Quarterly
GoldenTree Partners, L.P. 858,000 885,700 4.94% Quarterly
Greywolf Capital Partners II, L.P. 8,509 7,006 0.04% (4)
Senator Global Opportunity Fund, L.P. 500,000 578,145 3.22% Quarterly
----------- ----------- ------
TOTAL EVENT DRIVEN 1,866,509 2,037,252 11.36%
----------- ----------- ------
GLOBAL MACRO:
COMAC Global Macro Fund, Ltd. (Shares: 6,019.880) 823,353 891,607 4.97% Monthly
Remington Investment Strategies, L.P. 650,000 696,009 3.88% Annually
Tudor BVI Global Fund, Ltd. 850,000 911,946 5.08% Quarterly
----------- ----------- ------
TOTAL GLOBAL MACRO 2,323,353 2,499,562 13.93%
----------- ----------- ------
RELATIVE VALUE:
D.E. Shaw Composite Fund, LLC 938,547 950,018 5.30% Quarterly (3)
Ellington Mortgage Partners, L.P. 92,047 109,099 0.61% (5)
----------- ----------- ------
TOTAL RELATIVE VALUE 1,030,594 1,059,117 5.91%
----------- ----------- ------
TOTAL PORTFOLIO FUNDS 14,853,971 15,548,653 86.68%
----------- ----------- ------
CASH EQUIVALENT:
SDIT Prime Obligation Fund, Class A, 0.140% (6) 2,622,909 2,622,909 14.62% Daily (7)
----------- ----------- ------
TOTAL CASH EQUIVALENT 2,622,909 2,622,909 14.62%
----------- ----------- ------
TOTAL INVESTMENTS $17,476,880 $18,171,562 101.30%
=========== =========== ======
</Table>
(1) Percentages are based on Members' Capital at September 30, 2009, of
$17,938,672.
(2) Liquidity terms shown apply after lock-up provisions. Please see Note 10.L
of the Notes to the Financial Statements.
(3) Portfolio Fund restricted redemptions. Please see Note 10.L of the Notes to
the Financial Statements.
(4) Represents a side pocket balance which will be liquidated upon monetization
of assets held in the side pocket. Please see Note 10.K of the Notes to the
Financial Statements.
(5) Ellington Mortgage Partners, L.P. is in the process of liquidating its
portfolio.
(6) The rate shown is the 7-day effective yield as of September 30, 2009.
(7) See Note 13 of the Notes to Financial Statement regarding cash balance of
the Fund.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
2
Old Mutual Absolute Return Master Fund, L.L.C.
Statement of Assets and Liabilities (Unaudited)
September 30, 2009
<Table>
ASSETS
Investments in Portfolio Funds, at fair value (cost $14,853,971) $ 15,548,653
Cash equivalent (cost $2,622,909) 2,622,909
Receivable for investments sold 12,818
Interest receivable 170
------------
TOTAL ASSETS 18,184,550
------------
LIABILITIES
Redemption payable 129,000
Professional fees payable 107,152
Payable to Adviser 4,601
Administration fees payable 2,500
Board of Managers' fees payable 1,875
Other accrued expenses 750
------------
TOTAL LIABILITIES 245,878
------------
NET ASSETS $ 17,938,672
============
MEMBERS' CAPITAL
Net capital $ 16,583,590
Accumulated net investment loss (626,893)
Accumulated net realized gain on Portfolio Funds 1,287,293
Net unrealized appreciation/depreciation on investments in Portfolio Funds 694,682
------------
TOTAL MEMBERS' CAPITAL $ 17,938,672
============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
Old Mutual Absolute Return Master Fund, L.L.C.
Statement of Operations (Unaudited)
For the six-month period ended September 30, 2009
<Table>
INVESTMENT INCOME:
Interest $ 2,531
---------
EXPENSES:
Professional fees 70,479
Due diligence fees 17,330
Board of Managers' fees 3,750
Printing fees 2,737
Administration fee 2,500
Insurance fees 1,322
Custody fee 750
Filing fees 95
Other expenses 2,565
---------
Total expenses 101,528
---------
NET INVESTMENT LOSS (98,997)
---------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS IN PORTFOLIO FUNDS
Net realized loss on investments in Portfolio Funds (463,609)
Net change in unrealized appreciation/
depreciation on investments in Portfolio Funds 779,927
---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS IN PORTFOLIO FUNDS 316,318
---------
NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM INVESTMENT ACTIVITIES $ 217,321
=========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
Old Mutual Absolute Return Master Fund, L.L.C.
Statements of Changes in Members' Capital
<Table>
<Caption>
For the six-
months ended For the year
September 30, 2009 ended
(Unaudited) March 31, 2009
------------------ --------------
FROM INVESTMENT ACTIVITIES:
Net investment loss* $ (98,997) $ (109,826)
Net realized gain (loss) on investments in Portfolio Funds (463,609) 1,137,729
Net change in unrealized appreciation/depreciation on investments in
Portfolio Funds 779,927 (1,310,281)
------------ ------------
Net increase (decrease) in Members' Capital derived from
investment activities 217,321 (282,378)
------------ ------------
MEMBERS' CAPITAL TRANSACTIONS:
Proceeds from sales of Interests 3,471,265 5,583,753
Redemptions of Interests (1,715,465) (2,293,032)
------------ ------------
Total Members' Capital Transactions 1,755,800 3,290,721
------------ ------------
Net Increase in Members' Capital 1,973,121 3,008,343
Members' Capital at Beginning of Period 15,965,551 12,957,208
------------ ------------
Members' Capital at End of Period $ 17,938,672 $ 15,965,551
============ ============
ACCUMULATED NET INVESTMENT LOSS $ (626,893) $ (527,896)
============ ============
</Table>
* Investment income less net expenses.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
Old Mutual Absolute Return Master Fund, L.L.C.
Statement of Cash Flows (Unaudited)
For the six-month period ended September 30, 2009
<Table>
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in Members' Capital derived from investment activities $ 217,321
Adjustments to reconcile net increase in Members' Capital derived from investment activities to net cash
used in operating activities:
Purchases of Portfolio Funds, at fair value (5,409,050)
Proceeds from sales of Portfolio Funds 3,297,595
Net realized loss on investments in Portfolio Funds 463,609
Net change in unrealized appreciation/depreciation on investments in Portfolio Funds (779,927)
Changes in operating assets and liabilities:
Decrease in receivable for investments sold 383,475
Decrease in prepaid insurance fees 1,322
Decrease in interest receivable 747
Decrease in fund investments made in advance 350,000
Decrease in due from Old Mutual
Absolute Return Fund, L.L.C 110,023
Decrease in payable to Adviser (83,656)
Increase in professional fees payable 7,152
Increase in administration fees payable 1,250
Increase in other accrued expenses 375
-----------
Net cash used in operating activities (1,439,764)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of Interests 3,471,265
Redemption of Interests, net of change in redemption payable (3,046,467)
-----------
Net cash provided by financing activities 424,798
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,014,966)
Cash and cash equivalents, beginning of Period 3,637,875
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,622,909
===========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Redemption payable $ 129,000
===========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
Old Mutual Absolute Return Master Fund, L.L.C.
Financial Highlights
<Table>
<Caption>
For the six-month
period ended For the For the November 1, 2006*
September 30, 2009 year ended year ended to
(Unaudited) March 31, 2009 March 31, 2008 March 31, 2007
------------------ -------------- -------------- ------------------
Total Return 1.05%(1) (1.73)% 8.83% 3.95% (1)
Net assets, end of period (in 000's) $17,939 $15,966 $12,957 $11,017
Ratio to average members' capital:
Expenses (2) 1.20% (3) 0.98% 2.86% 2.93% (3)
Net investment loss (1.17)% (3) (0.68)% (2.56)% (2.52)% (3)
Portfolio turnover rate (5) 22.99% (4) 52.98% 25.01% 2.52% (4)
</Table>
* Commencement of operations.
(1) Total return is for the period indicated and has not been annualized.
(2) Expenses of Portfolio Funds are not included in the expense ratio.
(3) Annualized.
(4) Not annualized.
(5) Portfolio turnover rate is the lesser of purchases or proceeds from sales
of investments in Portfolio Funds during the period divided by the average
value of investments in Portfolio Funds held during the period
Note: The expense ratios, the net investment loss ratio, and the total return
percentages are calculated for the Members taken as a whole. The computation of
such ratios and return based on the amount of expenses charged to any specific
Member may vary from the overall ratios presented in the financial statements as
a result of the timing of capital transactions.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited)
September 30, 2009
1. ORGANIZATION
Old Mutual Absolute Return Master Fund, L.L.C. (the "Fund") is a Delaware
limited liability company that is registered under the Investment Company Act of
1940, as amended (the "1940 Act") with the United States Securities and Exchange
Commission ("SEC"), as a non-diversified, closed-end, management investment
company, which was formed on April 25, 2006 and commenced operations on November
1, 2006. The Fund is a master fund in a master/feeder structure into which its
feeder funds, Old Mutual Absolute Return Fund, L.L.C. (the "Feeder Fund") and
Old Mutual Absolute Return Institutional Fund, L.L.C. (the "Institutional Feeder
Fund"), (collectively, the "Feeders" or "Members"), invest substantially all of
their assets. As of September 30, 2009, the Feeder Fund's investment in the Fund
represented 92.0% Members' Capital, the Institutional Feeder Fund's investment
in the Fund represented 8.0% of Members' Capital.
The Fund employs a "fund of funds" investment program that enables eligible
investors, through one investment, to participate in the investment programs of
a professionally selected group of asset managers without being subject to the
high minimum investment requirements that many asset managers typically impose.
The Fund is similar to a private investment fund in that it is actively managed
and interests in the Feeders ("Interests") are sold solely to high net worth
individual and institutional investors, but differs from a typical private
investment fund in that it has registered as an investment company under the
1940 Act.
The Fund's investment objective is to seek to generate attractive returns while
attempting to reduce volatility. The Fund invests its assets primarily in
private investment funds, joint ventures, investment companies and other similar
investment vehicles ("Portfolio Funds") that are managed by a select group of
portfolio managers ("Portfolio Managers") that invest in a variety of financial
markets and utilize a broad range of alternative investment strategies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Fund's financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America and the rules and
regulations of the SEC. The following is a summary of the significant accounting
policies followed by the Fund:
A. Accounting Standards Codification
FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") LAUNCHES ACCOUNTING STANDARDS
CODIFICATION -- The FASB has issued FASB ASC 105 (formerly FASB Statement No.
168), THE "FASB ACCOUNTING STANDARDS CODIFICATION(TM)" AND THE HIERARCHY OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("ASC 105"). ASC 105 established the
FASB Accounting Standards Codification(TM) ("Codification" or "ASC") as the
single source of authoritative U.S. generally accepted accounting principles
("GAAP") recognized
8
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
by the FASB to be applied by nongovernmental entities. Rules and interpretive
releases of the SEC under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. The Codification supersedes all
existing non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification will become non-authoritative.
Following the Codification, the FASB will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standards Updates, which will serve to update
the Codification, provide background information about the guidance and provide
the basis for conclusions on the changes to the Codification.
GAAP is not intended to be changed as a result of the FASB's Codification
project, but it will change the way the guidance is organized and presented. As
a result, these changes will have a significant impact on how companies
reference GAAP in their financial statements and in their accounting policies
for financial statements issued for interim and annual periods ending after
September 15, 2009. The Fund has implemented the Codification as of September
30, 2009.
B. Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Adviser to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
C. Valuation of Portfolio Investments at Fair Value and Investment Transactions
In September, 2006, the FASB issued ASC 820 (formerly known as Statement of
Financial Accounting Standards No. 157 Fair Value measurements), which provides
enhanced guidance for using fair value to measure assets and liabilities. The
Fund adopted ASC 820 on April 1, 2008. ASC 820 establishes a fair value
hierarchy and specifies that a valuation technique used to measure fair value
shall maximize the use of observable inputs and minimize the use of unobservable
inputs. The objective of a fair value measurement is to determine the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (an exit price).
Accordingly, the fair value hierarchy gives the highest priority to quoted
prices (unadjusted) in active markets for identical assets or liabilities (Level
1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy under ASC 820 are described below:
- - Level 1 -- Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that the Fund has the ability to access
at the measurement date;
9
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- - Level 2 -- Quoted prices which are not active, or inputs that are
observable (either directly or indirectly) for substantially the full term
of the asset or liability; and
- - Level 3 -- Prices, inputs or exotic modeling techniques which are both
significant to the fair value measurement and unobservable (supported by
little or no market activity).
The net asset value of the Fund is determined by or at the discretion of the
Adviser as of the close of business as of the end of each month in accordance
with the valuation principles as may be determined from time to time pursuant to
policies established by the Fund's Board of Managers (the "Board"). The net
asset value of the Fund is primarily based on the fair value of each of its
interests in Portfolio Funds.
Ordinarily, these values are determined by the Portfolio Managers of the
Portfolio Funds in accordance with the Portfolio Funds' valuation policies and
as reported by the Portfolio Managers. As a general matter, the fair value of
the Fund's interest in a Portfolio Fund represents the amount that the Fund
could reasonably expect to receive from the Portfolio Fund if the Fund's
interest were redeemed at the time of valuation, based on information reasonably
available at the time the valuation is made and that the Fund believes to be
reliable.
The Fund's valuation procedures require the Adviser to consider all relevant
information available at the time the Fund values its assets. The Adviser or, in
certain cases, the Fund's Board, will consider such information, and may
conclude in certain circumstances that the information provided by a Portfolio
Manager does not represent the fair value of the Fund's interests in a Portfolio
Fund. Following procedures adopted by the Board, in the absence of specific
transaction activity in interests in a particular Portfolio Fund, the Fund could
consider whether it was appropriate, in light of all relevant circumstances, to
value such a position at the Portfolio Fund's net asset value as reported at the
time of valuation, or whether to adjust such value to reflect a premium or
discount to net asset value. In its determination of fair value the Board
considers subscription and redemption rights, including any restrictions on the
redemptions from the Portfolio Funds. Investments in portfolio funds are
included in Level 3 of the fair value hierarchy. Any such decision must be made
in good faith, and subject to the review and supervision of the Board.
Realized gains and losses from Portfolio Fund transactions are calculated on the
identified cost basis. Investment transactions are recorded on the effective
date of the subscription to or redemption from the Portfolio Fund.
Interest income is recorded on an accrual basis and consists of interest earned
on cash and cash equivalents.
As required by ASC 820, investments are classified within the level of the
lowest significant input considered in determining fair value. Investments
classified within Level 3 consider several inputs and may include Level 1 or
Level 2 inputs as components of the overall fair value measurement.
10
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The table below sets forth information about the level within the fair value
hierarchy at which the Fund's investments are measured at September 30, 2009:
<Table>
<Caption>
Level 1 --
Quoted Prices Level 2 --
in Active Significant Level 3 --
Markets for Other Significant Total as of
Identical Observable Unobservable September 30,
Assets Inputs Inputs 2009
------------- ----------- ------------ -------------
Investments in Portfolio Funds $ -- $ -- $ 15,548,653 $ 15,548,653
Cash Equivalents 2,622,909 -- -- 2,622,909
----------- --------- ------------ ------------
Totals $ 2,622,909 $ -- $ 15,548,653 $ 18,171,562
=========== ========= ============ ============
</Table>
The following is a reconciliation of the investments in which significant
unobservable inputs (Level 3) were used in determining value:
<Table>
<Caption>
Beginning Realized and Ending Balance
Balance as of unrealized Net purchase/ as of September
April 1, 2009 gains/(losses) sales 30, 2009
------------- -------------- ------------- ---------------
$ 13,120,880 $ 316,318 $ 2,111,455 $ 15,548,653
------------- -------------- ------------- ---------------
</Table>
Realized and unrealized gains and losses are included in net gain (loss) on
investments in the statement of operations. The change in unrealized gains
(losses) for the six-month period ended September 30, 2009 for investments still
held at September 30, 2009 of $779,927 is reflected in net change in unrealized
appreciation/depreciation on investments in Portfolio Funds.
For the six-month period ended September 30, 2009, there have been no
significant changes to the Fund's fair value methodologies.
11
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. Income Taxes
Counsel to the Fund rendered an opinion that the Fund will be classified as a
partnership and not as an association taxable as a corporation for Federal tax
purposes. Counsel to the Fund also rendered its opinion that, under a "facts and
circumstances" test, the Fund will not be treated as a "publicly traded
partnership" taxable as a corporation. Accordingly, the Fund should not be
subject to Federal income tax, and each Member will be required to report on its
own annual tax return such Member's distributive share of the Fund's taxable
income or loss.
The Fund evaluates tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether it is "more-likely
than-not" (i.e., greater than 50-percent) that each tax position will be
sustained upon examination by a taxing authority based on the technical merits
of the position. Tax positions not deemed to meet the more-likely-than-not
threshold are recorded as a tax benefit or expense in the current year. The Fund
did not record any tax provision in the current period. However, management's
conclusions regarding tax positions taken may be subject to review and
adjustment at a later date based on factors including, but not limited to,
examination by tax authorities (i.e., the last 3 tax year ends, as applicable),
on-going analysis of and changes to tax laws, regulations and interpretations
thereof.
As of and during the six-month period ended September 30, 2009, the Fund did not
have a liability for any unrecognized tax benefits. The Fund recognizes interest
and penalties, if any, related to unrecognized tax benefits as income tax
expense in the Statement of Operations. During the six-month period ended
September 30, 2009, the Fund did not incur any significant interest or
penalties.
The aggregate income tax basis of investments was $17,476,880. Net unrealized
appreciation on investments for income tax purposes was $694,862, consisting of
$1,020,818 of gross unrealized appreciation and ($326,136) of gross unrealized
depreciation.
E. Distribution Policy
The Fund has no present intention of making periodic distributions of its net
investment income or capital gains, if any, to Members. The amount and frequency
of distributions, if any, will be determined in the sole discretion of the
Board.
F. Distributions from Portfolio Funds
Distributions from Portfolio Funds will be classified as investment income or
realized gains in the Statements of Operations, or alternatively, as a decrease
to the cost of the investments based on the U.S. income tax characteristics of
the distribution if such information is available. In cases where the tax
characteristics are not available, such distribution will be classified as
investment income.
12
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
G. Cash and Cash Equivalents
As of September 30, 2009, cash and cash equivalents consists of an investment in
a money market fund affiliated with the Administrator (as defined in Note 3).
3. RELATED PARTY TRANSACTIONS AND OTHER
A. Related Party Transactions
Larch Lane Advisors LLC (the "Adviser"), a Delaware limited liability company,
serves as the investment adviser of the Fund. The Adviser is a registered
investment adviser (RIA) under the Investment Advisers Act of 1940, as amended
(the "Advisers Act"). LLA Holdings, LLC, the special member of the Adviser, owns
a majority of the Adviser and is an indirect majority-owned subsidiary of Old
Mutual (US) Holdings, Inc. ("OMUSH"), which is a wholly- owned subsidiary of Old
Mutual plc, a London exchange listed international financial services firm.
Effective April 1, 2009, OMUSH transferred its ownership interest in the Fund of
approximately $1,111,500 to Old Mutual Absolute Return Institutional Fund,
L.L.C. in exchange for 11,005 units of the Fund and does not own any Interests
as of September 30, 2009. The Adviser is responsible for developing,
implementing and supervising the Fund's investment program and providing
day-to-day management services to the Fund. The Adviser has also paid various
expenses for the Fund for which the Fund has a non-interest bearing payable
which is due upon demand. The accompanying Statement of Assets and Liabilities
includes a payable to Adviser of $4,601.
Under the agreement with the Adviser, the Fund does not pay any investment
management fee to the Adviser. The fees are paid at the Feeder Fund level.
However, under the agreement, in the event the Adviser ceases to serve as the
Adviser to each Feeder, the Master Fund would then be subject to a fee that is
calculated and payable in accordance with the lowest annual rate that had most
recently been charged by the Adviser to a Feeder.
The Fund and the Feeder Fund have entered into a Master/Feeder Agreement dated
October 13, 2006, and the Fund and the Institutional Feeder Fund have entered
into a Master/Feeder Agreement dated February 8, 2007. Pursuant to the
agreements, the Fund and the Feeders will each have the same investment
objective and substantially the same investment policies. The Feeders will
pursue their investment objectives by investing on an ongoing basis
substantially all of their investable assets in the Fund in exchange for limited
liability company interests in the Fund. The Master/Feeder Agreements will
remain in effect unless terminated by the Fund or the Feeders.
B. Other
Pursuant to an administrative services agreement, SEI Investments Global Funds
Services (the "Administrator"), provides various administrative services to the
Fund and the Feeders, including fund accounting, investor accounting and
taxation services, maintaining the register of the Fund and generally performing
all actions related to the issuance and transfer of Interests; reviewing and,
subject to approval by the Fund, accepting subscriptions for Interests and
accepting payment therefore; performing all acts related to the repurchase of
Interests; and performing all other clerical services necessary in connection
with the administration of the Fund.
13
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
3. RELATED PARTY TRANSACTIONS AND OTHER (CONCLUDED)
In consideration for the services provided by the Administrator, the Fund pays
the Administrator a monthly fee calculated and assessed monthly in arrears at an
annualized rate of 0.01% of the Fund's net assets, subject to a minimum annual
fee of $5,000.
SEI Private Trust Company (the "Custodian") serves as the custodian for the
assets of the Fund. In consideration for the services provided by the Custodian,
the Fund pays the Custodian a monthly fee at an annualized rate of 0.0075% of
the Fund's net assets, subject to a minimum annual fee of $1,500. The agreement
will remain in effect unless terminated by the Fund or the Custodian.
The Fund is managed by the Board of Managers (the "Board") and each member of
the Board who is not an "interested manager" of the Fund, as defined by the 1940
Act (the "Independent Managers"), is entitled to an annual retainer of $2,500
and will be reimbursed by the Fund for travel-related expenses. The Independent
Managers of the Board are Gerald Hellerman, Paul D. Malek, and George W.
Morriss.
4. FUND EXPENSES
The Fund bears its own operating expenses. These operating expenses include, but
are not limited to: all investment-related expenses (including, but not limited
to, fees paid directly or indirectly to Portfolio Managers, investment-related
interest expenses, all costs and expenses directly related to portfolio
transactions and positions, transfer taxes and premiums and taxes withheld on
foreign dividends); any non-investment related interest expense; fees and
disbursements of any attorneys or accountants engaged on behalf of the Fund;
entity-level taxes, audit and tax preparation fees and expenses; administrative
expenses and fees of the Fund; custody expenses of the Fund; the costs of an
errors and omissions/directors and officers liability insurance and a fidelity
bond for the Fund; fees and travel-related expenses of the Board of the Fund who
are not employees of the Adviser or any affiliate of the Adviser; all costs and
charges for equipment or services used in communicating information regarding
the Fund's transactions among the Adviser and any custodian or other agent
engaged by the Fund; any extraordinary expenses; and such other expenses as may
be approved from time to time by the Board. Amounts shown as expenses in the
statement of operations and financial highlights include only those expenses
charged directly to the Fund and do not reflect management fees, advisory fees,
brokerage commissions and other fees and expenses incurred by the Portfolio
Funds in which the Fund invested. These amounts are included in realized and
unrealized gain (loss) on investments in funds in the statement of operations.
The Fund also indirectly bears fees and expenses of the Portfolio Funds. Each
Portfolio Manager generally receives a management fee and a performance fee or
allocation with respect to the assets of Portfolio Funds that it manages. The
amount of these fees and allocations varies among Portfolio Managers, but the
management fees are generally expected to be between 1.0%-2.0%, on an annual
basis, of the total assets managed by a Portfolio Manager, and the performance
fees or allocations are generally expected to be between 15%-25% of the net
capital appreciation (if any) in the assets managed by a Portfolio Manager.
14
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
5. BORROWINGS
The Fund is authorized to borrow money for investment purposes, to meet
repurchase requests and for cash management purposes. Borrowings by the Fund are
subject to a 300% asset coverage requirement under the 1940 Act. Portfolio Funds
that are not registered investment companies are not subject to this
requirement. The Fund had no borrowings during the six-month period ended
September 30, 2009.
6. CAPITAL ACCOUNTS AND ALLOCATIONS
The Fund maintains a separate capital account for each Member. The net profits
or net losses of the Fund (including, without limitation, net realized gain or
loss and the net change in unrealized appreciation or depreciation of securities
positions) are credited to or debited against the capital accounts of Members as
of the end of each fiscal period in accordance with their respective investment
percentages for the period. Each Member's investment percentage is determined
each fiscal period by dividing, as of the commencement of the period, the
balance of the Member's capital account by the sum of the balances of the
capital accounts of all Members.
A fiscal period begins on the day after the last day of the preceding fiscal
period and ends at the close of business on the first to occur of: (i) the last
day of each fiscal year (March 31); (ii) the last day of each taxable year
(December 31); (iii) the day preceding the date as of which any contributions to
the capital of the Fund is made; (iv) any day as of which the Fund repurchases
the Interest (or portion thereof) of any Member; or (v) any day as of which any
amount is credit to or debited from the capital account of any Member other than
an amount to be credited to or debited from the capital accounts of all Members
in accordance with their respective investment percentages.
7. SUBSCRIPTIONS AND REDEMPTIONS OF INTERESTS
The Board may admit one or more Members generally at the beginning of each
month; provided, however, that the Fund may, in the discretion of the Board,
admit Members more or less frequently.
No Member or other person holding an Interest or portion thereof shall have the
right to require the Fund to repurchase that Interest or portion thereof. The
Board, in its sole discretion and on such terms and conditions as it may
determine, may cause the Fund to repurchase Interests or portions thereof
pursuant to written tenders. In determining whether to cause the Fund to
repurchase Interests or portions thereof pursuant to written tenders, the Board
shall consider, among other things, the recommendation of the Adviser.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Portfolio Funds in which the Fund invests
trade various financial instruments and enter into various investment activities
with off-balance sheet risk. These include, but are not limited to, short
selling activities, writing options contracts, and swap contracts. The Fund's
risk of loss in the Portfolio Funds is limited to the value of the Fund's
Investment.
15
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
9. INDEMNIFICATIONS
In the normal course of business, the Fund enters into contracts that contain a
variety of representations which provide general indemnifications. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be against the Fund that have not yet occurred. However,
based on experience, the Fund expects the risk of loss to be remote.
10. CONCENTRATIONS OF RISK
The Fund invests primarily in Portfolio Funds that are not registered under the
1940 Act which invest in and actively trade securities and other financial
instruments using different strategies and investment techniques, including
leverage, which may involve significant risks. These Portfolio Funds may invest
a high percentage of their assets in specific sectors of the market in order to
achieve a potentially greater investment return. As a result, the Portfolio
Funds may be more susceptible to economic, political, and regulatory
developments in a particular sector of the market, positive or negative, and may
experience increased volatility of the Portfolio Funds' net asset value.
The Fund may invest in a limited number of Portfolio Funds. Such concentration
may result in additional risk. The Portfolio Funds may enter into the following
transactions and certain of the related risks are described below:
A. Short Sales
Short sales are sales of securities that are not owned or that are not intended
for delivery and the seller will therefore be obligated to purchase such
securities at a future date. The value of the open short position is recorded as
a liability, and the seller records unrealized gain or loss to the extent of the
difference between the proceeds received and the value of the open short
position. A realized gain or loss is recorded when the short position is closed
out. By entering into short sales, the seller bears the market risk of increases
in value of the security sold short in excess of the proceeds received.
B. Swap Agreements
A swap contract is a contract under which two parties agree to make periodic
payments to each other based on the value of a security, a specified interest
rate, an index or the value of some other instrument applied to a stated or
"notional" amount. Swaps are subject to various types of risk, including market
risk, liquidity risk, counterparty credit risk, legal risk and operations risk.
C. Options
The Portfolio Funds may buy or write put and call options through listed
exchanges and the over-the-counter market. The buyer has the right, but not the
obligation, to purchase (in the case of a call option) or sell (in the case of a
put option) a specified quantity of a specific security or other underlying
asset at a specified price prior to or on a specified expiration date. The
writer of an option is exposed to the risk of loss if the market price of the
underlying asset declines (in the case of a put option) or increases (in the
case of call option). The writer of an option can never profit by more than the
premium paid by the buyer but can lose an unlimited amount.
16
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
10. CONCENTRATIONS OF RISK (CONTINUED)
D. Futures Contracts
The Portfolio Funds may use futures contracts for hedging and non-hedging
purposes. Upon entering into a futures contract, the Portfolio Funds are
required to deposit an amount ("initial margin") equal to a certain percentage
of the contract value. Pursuant to the contract, the Portfolio Funds agree to
receive from, or pay to, the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are known as
"variation margin" and are recorded by the Portfolio Funds as unrealized gains
or losses. When the contract is closed, the Portfolio Funds record a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time when it was closed. The use of
futures transactions includes the risk of imperfect correlation in movements in
the price of futures contracts, interest rates, underlying hedged assets, and
the possible inability of the counterparties to meet the terms of their
contracts.
E. Leverage Transactions
In order to obtain more investable cash, the Portfolio Funds may use various
forms of leverage including purchasing securities on margin. Such leverage may
allow the Portfolio Funds to increase partners' capital at a greater rate during
favorable markets, but also may lead to a more rapid decrease in partners'
capital in unfavorable markets. A margin transaction consists of purchasing an
investment with money loaned by a broker and agreeing to repay the broker at a
later date. Interest expense on the outstanding margin balance is based on
market rates at the time of the borrowing.
F. Forward Foreign Currency Contracts
The Portfolio Funds may enter into forward foreign currency contracts. Forward
contracts are over-the-counter contracts for delayed delivery of currency in
which the buyer agrees to buy and the seller agrees to deliver a specified
currency at a specified price on a specified date. Because the terms of forward
contracts are not standardized, they are not traded on organized exchanges and
generally can be terminated or closed-out only by agreement of both parties to
the contract. All commitments are marked to market on each valuation date at the
applicable foreign exchange rate and any resulting unrealized gain or loss is
recorded on such date. The Portfolio Fund realizes gains and losses at the time
forward contracts are extinguished or closed upon entering into an offsetting
contract.
G. Repurchase Agreements
Repurchase agreements are agreements under which a Portfolio Fund or the Fund
purchases securities from a bank that is a member of the Federal Reserve System,
a foreign bank or a securities dealer that agrees to repurchase the securities
from the Portfolio Fund at a higher price on a designated future date. If the
seller under a repurchase agreement becomes insolvent, the Portfolio Fund's
right to dispose of the securities may be restricted, or the value of the
securities may decline before the Portfolio Fund is able to dispose of them.
17
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
10. CONCENTRATIONS OF RISK (CONTINUED)
H. Reverse Repurchase Agreements
Reverse repurchase agreements are a form of borrowing that involves a sale of a
security by a Portfolio Fund to a bank or securities dealer and the Portfolio
Fund's simultaneous agreement to repurchase that security for a fixed price
(reflecting a market rate of interest) on a specific date. These transactions
involve a risk that the other party to a reverse repurchase agreement will be
unable or unwilling to complete the transaction as scheduled, which may result
in losses to the Portfolio Fund. Reverse repurchase transactions are a form of
leverage and may increase the volatility of a Portfolio Fund's investment
portfolio.
I. Lending Portfolio Securities
Portfolio Funds may lend securities held in their portfolios to brokers, dealers
and other financial institutions needing to borrow securities to complete
certain transactions. The lending Portfolio Fund continues to be entitled to
payments in amounts equal to the interest, dividends or other distributions
payable on the loaned securities which afford it an opportunity to earn interest
on the amount of the loan and on the loaned securities' collateral. Loans of
portfolio securities by a Sub-Manager may not exceed 33-1/3% of the value of a
Portfolio Account's total assets, and, in respect of such transactions, the
Portfolio Fund will receive collateral consisting of cash, U.S. Government
Securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. A Portfolio Fund might experience loss if the institution
with which the Portfolio Fund has engaged in a portfolio loan transaction
breaches its agreement with the Portfolio Fund.
J. When-Issued and Forward Commitment Securities
Portfolio Managers may purchase securities on a when-issued basis and may
purchase or sell securities on a forward commitment basis in order to hedge
against anticipated changes in interest rates and prices. These transactions
involve a commitment by a Portfolio Fund to purchase or sell securities at a
future date (ordinarily one or two months later). The price of the underlying
securities, which is generally expressed in terms of yield, is fixed at the time
the commitment is made, but delivery and payment for the securities takes place
at a later date. No income accrues on securities that have been purchased
pursuant to a forward commitment or on a when-issued basis prior to delivery to
the Portfolio Fund. When-issued securities and forward commitments may be sold
prior to the settlement date. If a Portfolio Fund disposes of the right to
acquire a when-issued security prior to its acquisition or disposes of its right
to deliver or receive against a forward commitment, it may incur a gain or loss.
There is a risk that securities purchased on a when-issued basis may not be
delivered and that the purchaser of securities sold by a Portfolio Fund on a
forward basis will not honor its purchase obligation. In such cases, a Portfolio
Fund may incur a loss.
18
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
10. CONCENTRATIONS OF RISK (CONCLUDED)
K. Restricted and Illiquid Investments
Portfolio Funds may invest in restricted securities and other investments which
are illiquid. Restricted securities are securities that may not be sold to the
public without an effective registration statement under the Securities Act of
1933 or, if they are unregistered, may be sold only in a privately negotiated
transaction or pursuant to an exemption from registration. Further, from time to
time, certain Portfolio Managers may allocate certain Portfolio Fund assets
(which generally are illiquid) to special investment accounts within the
particular Portfolio Fund managed by the Portfolio Manager (I.E., "side pockets"
or "special investment accounts"). Generally, the Portfolio Funds will not be
able to withdraw their interest in such side pockets or special investment
accounts until they are disposed of by the Portfolio Manager. The market prices,
if any, for illiquid securities tend to be volatile and a Portfolio Fund may not
be able to sell them when it desires to do so or to realize what it perceives to
be their fair value in the event of a sale. The Fund's interests in unregistered
Portfolio Funds are themselves illiquid and subject to substantial restrictions
on transfer. The Fund may liquidate an interest and withdraw from an
unregistered Portfolio Fund pursuant to limited withdrawal rights. The
illiquidity of these interests may adversely affect the Fund if it is unable to
withdraw its investment in a Portfolio Fund promptly after it determines to do
so.
L. Liquidity
The Portfolio Funds provide for periodic redemptions, with lock-up provisions up
to two years from the initial investment. The liquidity provisions shown on the
Schedule of Investments apply after the lock-up provisions expire.
Certain Portfolio Funds may restrict the ability of investors to redeem their
interests in the fund, whether temporarily or during a liquidation of the
Portfolio Fund, and may seek to amend their liquidity provisions and impose
additional restrictions on investor liquidity. Certain Portfolio Funds may
permit withdrawals on a date other than as provided under standard liquidity
terms subject to the payment of certain additional fees or charges.
M. Credit Risk
The Fund will be exposed to credit risk on Portfolio Funds with whom they trade
and will always bear the risk of settlement on default.
N. Interest Rate Risk
A number of the underlying funds that the Fund invests in may be interest rate
sensitive, which means that their value and consequently, the New Asset Value of
the Fund, may fluctuate as interest rates fluctuate.
11. INVESTMENT TRANSACTIONS
For the six-month period ended September 30, 2009, the Fund made investments in
Portfolio Funds in the amount of $5,409,050 and redeemed investments in
Portfolio Funds in the amount of $3,297,595.
19
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
12. INVESTMENTS
As of September 30, 2009, the Fund had investments in twenty-six Portfolio
Funds, none of which are related parties.
The Fund limits its investment position in any one Portfolio Fund to less than
5% of the Portfolio Fund's outstanding voting securities, absent an order of the
Securities and Exchange Commission (the "SEC") (or assurances from the SEC
staff) under which the Fund's contribution and withdrawal of capital from a
Portfolio Fund in which it holds 5% or more of the outstanding interests will
not be subject to various 1940 Act prohibitions on affiliated transactions. The
Fund also is not required to adhere to this 5% investment limitation to the
extent that it relies on certain SEC rules that provide exemptions from 1940 Act
prohibitions on affiliated transactions. However, to facilitate investments in
smaller Portfolio Funds deemed attractive by the Adviser, the Fund may purchase
non-voting securities of, or waive its right to vote its interests in, Portfolio
Funds. Although the Fund may hold non-voting interests, the 1940 Act and the
rules and regulations thereunder may nevertheless require the Fund to limit its
position in any one Portfolio Fund, if investments in a Portfolio Fund by the
Fund will equal or exceed 25% of the Portfolio Fund's assets, or such lower
percentage limit as may be determined by the Fund in consultation with its
counsel. These restrictions could change from time to time as applicable laws,
rules or interpretations thereof are modified.
Portfolio Funds' Investment Strategies:
CTA/FUTURES/CURRENCY
Commodity Trading Advisor managers will typically have portfolio funds employing
this particular strategy purchase and sell local or foreign currency, commodity
futures and options or such futures contracts based on supply and demand factors
affecting price within each market. Certain Portfolio funds also use
commodity-related equities to implement their strategies.
EQUITY LONG BIAS
Equity Long Bias managers will typically have portfolios of long equities as
well as some short positions. Unlike variable bias or market neutral, Equity
Long Bias managers are expected to average at least 70% net long (gross long
positions minus short positions). Leverage may be employed, though likely at a
lower amount than market neutral or variable bias strategies. This strategy will
show a high degree of correlation to equity markets, as the majority of their
profits will stem from their long positions. Short positions will typically be
used to hedge though may also be opportunistic in nature.
EQUITY MARKET NEUTRAL
Equity Market Neutral managers will typically have portfolios of long equities
and short equities in equal amounts. While this strategy does offer some
flexibility, managers in this strategy are expected to keep their net exposure
within +/-20%. Leverage will be employed. Short positions can be hedges or
profit centers. While an overall fund can be market neutral, managers may take
sector exposure (though many do not). This strategy should show little
correlation to equity markets, as returns are driven by stock picking, or in the
case of quantitatively driven strategies, factors.
20
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (continued)
12. INVESTMENTS (CONCLUDED)
Portfolio Funds' Investment Strategies (concluded):
EQUITY SHORT BIAS
Equity Short Bias managers will typically have portfolios of short equities as
well as some long positions. Leverage may be employed, though likely at a lower
amount than market neutral or variable bias strategies. This strategy will show
a low degree of correlation to equity markets, as the majority of their profits
are expected to stem from their short positions. Long positions will typically
be used to hedge though may also be opportunistic in nature.
EQUITY VARIABLE BIAS
Equity Variable Bias managers will typically have portfolios of long equities
and short equities. As per the strategy name, net exposure is variable, ranging
from net long to net short to market neutral. Security selection may either be
fundamental or quantitative while net exposure can be either bottom up (security
specific) or top down (macro driven). Leverage is also variable, with some
managers in this strategy using little or no leverage while others may use
substantial leverage; typically, leverage will be lower than found in Equity
Market Neutral. Short positions can be hedges or profit centers. While the bulk
of the portfolio should consist of equities, indices, ETFS, options and futures
may also be used. This strategy's correlation to equity markets will vary, with
returns are driven by stock picking as well as net positioning.
EVENT DRIVEN
Event Driven managers will typically employ strategies that involve investing in
companies experiencing significant corporate changes. Mispricings arise from
events such as spin-offs, restructurings, stub trades, or other corporate
changes that the broad market does not fully comprehend and appropriately value.
This strategy also includes activist managers who take controlling stakes in
companies and force the "event" internally.
GLOBAL MACRO
Global macro strategies generally utilize analysis of macroeconomic,
geopolitical, and financial conditions to develop views on country, regional or
broader economic themes and then seek to capitalize on such views by trading in
securities, commodities, interest rates, currencies and other instruments.
RELATIVE VALUE
Relative Value managers typically seek risk-adjusted absolute returns with
volatility and correlation lower than the broad equity markets by allocating
assets to Advisors that operate primarily in the global relative value sector.
Relative value strategies seek to profit from the mispricing of financial
instruments, capturing spreads between related securities that deviate from
their fair value or historical norms. Directional and market exposure is
generally held to a minimum or completely hedged. Strategies that may be
utilized in the relative value sector include convertible arbitrage, equity
arbitrage and fixed-income arbitrage. Other strategies may be employed as well.
21
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (Unaudited) (concluded)
13. SUBSEQUENT EVENTS
From October 1, 2009 through November 25, 2009, the Fund received subscriptions
in the amount of $441,500.
Effective November 1 2009, the Fund made investments in Portfolio Funds in the
amount of $1,400,000.
The Fund has evaluated the need for disclosures and/or adjustments resulting
from subsequent events through November 25, 2009, the date the financial
statements were available to be issued. Based on this evaluation, no adjustments
were required to the financial statements as of September 30, 2009.
22
Old Mutual Absolute Return Master Fund, L.L.C.
Investment Management Agreement Approval (Unaudited)
The investment management agreement between Old Mutual Absolute Return Master
Fund, L.L.C., a Delaware limited liability company (the "Fund"), and Larch Lane
Advisors LLC, a Delaware limited liability company (the "Adviser") (the
"Investment Management Agreement"), may be continued in effect from year to year
subject to approval by: (i) the Fund's Board of Managers (the "Board"); or (ii)
the vote of a majority of the outstanding voting securities, as defined by the
1940 Act, of the Fund, provided that, in either event, the continuance must also
be approved by a majority of the managers (the "Managers") who are not
"interested persons," as defined by the 1940 Act, of the Fund (the "Independent
Managers"), by vote cast in person at a meeting called for the purpose of voting
on such approval. The Fund is a master fund in a master/feeder structure in
which its feeder funds (each, a "Feeder" and collectively with the Fund, the
"Funds") invest substantially all of their assets in the Fund.
At a meeting of the Board held on September 15, 2009, all of the Managers,
including all of the Independent Managers, approved the continuance of the
Investment Management Agreement for an additional year. In considering whether
to renew the Investment Management Agreement, the Board reviewed various
materials from counsel and from the Adviser which included: (i) information
concerning the services rendered to the Funds by the Adviser and the fees paid
by the Funds to the Adviser; (ii) information concerning the individuals
responsible for the day-to-day management of the Fund's assets; and (iii) a
summary of the legal duties of the Board under the 1940 Act. In particular, the
Board considered the following:
(a) THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER. The
Managers reviewed the services that the Adviser provides to the Fund and
reviewed various presentations from management in this regard. In connection
with the investment advisory services provided to the Fund, the Board discussed,
in detail, with representatives of the Adviser the management of the Fund's
investments in accordance with the Fund's stated investment objective and
policies and the types of transactions that are entered into on behalf of the
Fund. The Board noted that, in addition to the investment advisory services
provided to the Fund under the Investment Management Agreement, the Adviser also
provides certain administrative and other services necessary for the operation
of the Fund (including oversight of the Fund's day-to-day operations and Fund
accounting services). Based on its review of the information provided at the
meeting, and the discussions with the representatives of the Adviser and counsel
to the Fund at the meeting, the Board concluded that the Fund was receiving the
services required from the Adviser under the Investment Management Agreement and
that these services were of reasonably high quality.
(b) INVESTMENT PERFORMANCE OF THE FUND AND ADVISER. In connection with the
evaluation of the services provided by the Adviser, the Board considered the
investment performance of the Fund, and compared the performance of the Fund to
that of the S&P 500 Index and the HFRI Fund of Funds Index covering periods
since the Fund's inception through June 30, 2009. The Board found the Fund's
overall returns to be satisfactory.
23
Old Mutual Absolute Return Master Fund, L.L.C.
Investment Management Agreement Approval (Unaudited) (concluded)
(c) COST OF THE SERVICES PROVIDED AND PROFITS REALIZED BY THE ADVISER FROM THE
RELATIONSHIP WITH THE FUNDS. The Managers also considered the cost of the
services provided by the Adviser. Under the Investment Management Agreement, the
Fund does not pay any investment management fee to the Adviser so long as the
Adviser serves as the investment adviser to a Feeder. The Board noted that in
the event the Adviser ceases to serve as the Adviser to the Feeders, the Fund
will be charged the lowest annual rate that had most recently been charged by
the Adviser to a Feeder. The Board considered that, under the Feeders'
Investment Management Agreements with the Adviser, the Feeders each pay the
Adviser a fee at the annual rate of 1.25% of the Feeder's average net assets.
The Board also considered that the Fund also bears the advisory fees charged by
the Portfolio Funds. The Board noted that an expense cap is in place for each of
the Feeders and the impact of the cap on the Adviser. The Managers reviewed
information comparing the advisory fee rate and total expense ratio of the
Feeders to those of comparable registered funds.
The profitability realized by the Adviser was also considered. The Board relied
principally on information relating to the costs and profitability of the
Adviser from its relationship with the Funds. After reviewing the information
contained in the Profitability Analysis, the Board observed the Adviser's lack
of profitability from its relationship with the Funds. The Managers considered
the fact that the Adviser was absorbing a significant portion of the Funds'
expenses as a result of the Feeders' expense caps.
The Managers compared both the services rendered and the fees paid under the
Investment Management Agreement to other contracts of the Adviser and to
contracts of other advisers with respect to similar closed-end registered
investment companies. In particular, the Board evaluated the Funds' contractual
fee rate for advisory services as compared to the contractual fee rate of other
publicly offered closed-end funds that are managed by other investment advisers
that invest primarily in unregistered funds. The Board found that the Feeders'
(and, thus, the Fund's) advisory fee rates compared favorably to those of other
similar registered funds and were in line with other similar accounts managed by
the Adviser.
(d) THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS
AND WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE. The Board was
cognizant of the fact that economies of scale in costs of providing services may
be realized when there is a significant increase in a fund's assets. The
Independent Managers concluded, however, that the Fund had not begun to reach an
appropriate size to support fee reductions based on economies of scale realized
by the Adviser in providing services to the Funds.
CONCLUSION. Based on all of the foregoing, and such other matters that were
deemed relevant, the Board found the Fund's (and, thus, each Feeder's) level of
advisory fees to be fair and reasonable in light of the services provided by the
Adviser. No single factor was determinative to the decision of the Board. Based
on this determination, all of the Managers who were present at the September 15,
2009 meeting, including all of the Independent Managers, approved the
continuance of the Investment Management Agreement for an additional year.
24
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments is included as part of the report to shareholders
filed under Item 1 of this form N-CSRS.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The certifying officers, whose certifications are included herewith, have
evaluated the registrant's disclosure controls and procedures within 90 days of
the filing date of this report. In their opinion, based on their evaluation, the
registrant's disclosure controls and procedures are adequately designed, and are
operating effectively to ensure, that information required to be disclosed by
the registrant in the reports it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the second fiscal quarter of the period
covered by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) A separate certification for the principal executive officer and the
principal financial officer of the registrant, as required by Rule 30a-2(a)
under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are
filed herewith.
(b) Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Old Mutual Absolute Return Master Fund,
L.L.C.
By (Signature and Title)* /s/ Matthew J. Appelstein
-----------------------------------------
Matthew J. Appelstein
President & Chief Executive Officer
Date: December 7, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Matthew J. Appelstein
-----------------------------------------
Matthew J. Appelstein
President & Chief Executive Officer
Date: December 7, 2009
By (Signature and Title)* /s/ Ross Weissman
-----------------------------------------
Ross Weissman
Treasurer & Chief Financial Officer
Date: December 7, 2009
* Print the name and title of each signing officer under his or her
signature.